FHA-backed loans, once a small part of the mortgage market, now represent almost a quarter of all new housing loans in the U.S., according to new Census data. (See here, and then click on “Quarterly Sales by Price and Financing.)
Some of this difference is due to the lower volume of total loans. But the volume of FHA loans has almost tripled since 2006. In the first three quarters of this year, 66,000 loans were FHA-insured, compared to just 21,000 in the same period of 2007.
An FHA loan is not a government loan; it is a government-insured loan. Borrowers get FHA loans from traditional banks. The banks offer more lenient loan terms to the borrower, such as lower down payment requirements. To compensate banks for the additional risk, the FHA provides insurance to the bank against the borrower’s default.
Government does provide a small number of loans directly, mostly through the Veterans Administration. While the VA’s share of total loans has grown from about 2-3% earlier this decade to about 10% today, that increase is due mostly to the fact that there are fewer loans in total (i.e. the denominator, not the numerator, has changed.) The VA makes about 25,000 loans each year, according to the Census data.